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Corn Fuels Controversy

Prepared by: Stephanie Hanson
Updated: February 1, 2007

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The current energy debate goes beyond global warming or fuel efficiencies. Instead, lawmakers are increasingly abuzz over the new “yellow gold”—corn. President Bush’s call for alternative energy in his State of the Union address has accelerated an already-rising demand for ethanol, propelling corn to its highest prices (ChiTrib) in a decade. The difficulty in making comprehensive changes to energy policy and the bipartisan support for ethanol means the biggest legislation on energy may come from the 2007 Farm Bill, the details of which were announced Wednesday by Agriculture Secretary Mike Johanns. The bill proposes more than $1.6 billion in renewable energy funding.

Thanks to a boost in corn prices from ethanol, the U.S. government expects a steep drop (BusinessWeek) in price-dependent corn subsidies, from $8.8 billion in 2006 to $2.1 billion this year. The 2007 Farm Bill does not propose any major changes in the farm subsidy program, but it does call for cutting spending (AP) by $18 billion over the next five years, partly because of high prices for commodities like corn. The bill emphasizes direct income payments to farmers and would make it harder for farmers to qualify for production subsidies by lowering the income cap from $2.5 million to $200,000 a year. Some say the farm bill tweaks could bode well (Bloomberg) for global trade talks, currently stalled over agricultural subsidies. Oxfam America, a poverty-fighting group, says the proposed bill would move U.S. policy in a direction "more consistent with international trade rules." But the European Union’s agricultural commissioner criticized the proposed bill, saying the United States will need to propose “more ambitious cuts” (Reuters) to advance trade talks. The Center for American Progress suggests the new farm bill should use creative energy legislation, encouraging domestic production of non-corn biofuels and reducing the U.S. tariff on imported biofuels to “break the deadlock in the Doha Round.”

With the production of non-corn ethanol still prohibitively expensive, and the development of biotechnology to lower its cost years away, increasing U.S. ethanol production in the short-term will depend on corn. Yet for every farmer in Iowa switching acreage from soybeans to corn, there is someone criticizing the new ethanol boom. Chicken, cattle, and dairy producers warn that higher food prices are on the horizon (USAToday). Others note that there isn’t enough farmland in the United States to meet Bush’s alternative energy mandate with corn ethanol alone. Ethanol is less efficient than ordinary gasoline, write Jerry Taylor and Peter Van Doren of the CATO Institute, and it also increases air pollution. “What this country needs, and soon, is an Ethanolics Anonymous 12-step program,” opines the Colorado Springs Gazette.

Mexicans would agree. Astronomical tortilla prices have the country buzzing almost as much as does President Felipe Calderon’s aggressive military crackdown on drug cartels, and most Mexicans attribute the tortilla price increase to demand for ethanol (WashPost) in the United States.

But the two products use different types of corn (tortillas are made from white corn, ethanol from yellow), and the tortilla price jump is far higher than that of the price of yellow corn. A more likely culprit is an industry monopoly (PDF): One company controls 70 percent of the tortilla market. Some analysts hope Calderon will tackle the tortilla cartel with the same brio (Economist) he’s brought to the war on drugs.

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